Brief Outline of Topics Covered in Lecture 9
Chapter 15 Tools of Monetary Policy
The Market for Reserves and the Federal Funds Rate
- Tools of monetary policy: Open Market Operations, Discount Policy, and Reserve Requirements
Chapter 19 Money Demand
- Quantity Theory of Money
- Velocity of Money and Equation of Exchange
- Quantity Theory
- Quantity Theory of Money Demand
- The Cambridge Approach
- Is velocity a Constant?
- Keynes’s Liquidity Preference Theory
- Transactions Motive
- Precautionary Motive
- Speculative Motive
- Putting the Three Motives Together
Materials from class:
Video:
Lecture 9 [Google video] - Fall 2008
Lecture 9 [YouTube] - Fall 2008
Additional Reading:
- Fed Makes Breathtaking Changes, Cuts Rates Too - John M. Berry
- Does the Yield Curve Work in Times of Panic? - Zubin Jelveh
- Mortgage Justice Is Blind - NYTimes.com
- What if increased government spending is contractionary? - Stephen Gordon
- Public Works Projects Promoted at Hearing - NYTimes.com
- Treasury, FDIC Plan to Rework Millions of Mortgages - Economy Watch
- Repeating the Fed's Policy Mistake of 1936-1937 - David Beckworth
- The economics of labour market intermediation - Vox EU
- For all you statisticians out there - William J. Polley
- Does Nature Break the Second Law of Thermodynamics? Scientific American
- Deflation risk - Econbrowser
- Are voters influenced by newspaper picks? - EurekAlert
Application:
The Press Release from the Fed's FOMC meeting:
Press Release Release Date: October 29, 2008
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.
The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.
In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.
Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, and San Francisco.
